During the Asian trading session on Friday, the EUR/USD pair experienced a downward movement, stepping back from the previous day’s two-week high around the 1.0740 level. Presently, spot prices hover in the range of 1.0725-1.0720, with the pair’s trajectory largely dictated by the dynamics of the US Dollar (USD) as investors await crucial US data.
Of notable significance is the impending release of the US Personal Consumption Expenditures (PCE) Price Index data during the North American session. Market participants eagerly await this data release for insights into the Federal Reserve’s (Fed) trajectory regarding potential rate cuts. The outcome of this data release is poised to influence the near-term dynamics of the USD. Notably, prevailing sentiments suggest a growing consensus that the Fed may opt to maintain higher interest rates for an extended period, thus lending support to the Greenback and exerting downward pressure on the EUR/USD pair.
Market sentiment further solidified expectations as investors adjusted their forecasts, pushing back the anticipated timing of the first Fed rate cut to September. Reinforcing these sentiments was Thursday’s data, revealing a higher-than-anticipated rise in underlying inflation for the first quarter. This data helped offset concerns stemming from a slowdown in economic growth during the January-March quarter, with the US Treasury bond yields remaining elevated and providing additional support to the USD.
Conversely, speculation mounts regarding the European Central Bank‘s (ECB) potential interest rate cuts in June, amidst a quicker-than-expected decline in Eurozone inflation. This narrative suggests a downward bias for the EUR/USD pair. However, market participants exercise caution, awaiting substantial follow-through selling to confirm whether the recent recovery from the YTD low around the 1.0600 mark has reached its culmination, especially as traders anticipate the release of pivotal US inflation data.
